Pension Rollover?

Submitted by Bob Foland on Mon, 2015-06-01 20:36

A client is receiving monthly pension checks from a previous employer. He’s 66 and still working. His reasoning has been that since the money came from a qualified account, he can deposit it into his IRA and call it a rollover. There’s the obvious problem of multiple rollovers in a twelve month period, but even if that weren’t a problem, when the check comes made payable to him, wouldn’t these payments have to be treated as new IRA contributions. It appears that his previous advisor has been allowing him to do this without advising him against it. Am I missing something?



Submitted by Alan - IRA critic on Mon, 2015-06-01 21:12

  1. Sounds like everyone is missing something. If the pension is being paid out as a life annuity, a joint life annuity or for a period of 10 years or longer it is NOT eligible to be rolled over. But if the payout is not based on any of these periods, then the monthly distributions can be rolled over. There is no limit on the number of rollovers between a qualified plan and an IRA. If these pension payments were not eligible to be rolled over, they are taxable and the IRA will have received excess contributions to be corrected.
  2. If client was otherwise eligible for regular IRA contributions, they can still be made from his earned income. These are regular contributions and not affected by any rollover contributions client is eligible to complete. If the rollovers are excess contributions, they are treated as if they were regular contributions, but are only allowed up to the regular IRA contribution limit, and probably would not be deductible since client is still working and is subject to modified AGI income limits to deduct regular contributions.
  3. Therefore, it first must be determined if any of the pension payments are eligible for rollover. If not, since client also has earned income, a regular IRA contribution is permitted but may not be deductible due to income. In this case, some of the disallowed rollover would be treated as a non deductible regular TIRA contribution, and amounts in excess of that would be an excess contribution and have to be removed. This would have to stop at 70.5 where the only regular contributions allowed would be Roth contributions.

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